surveys conducted by the World Bank and UNICEF in mid-2021, more than half of PAPUA NEW Key conditions and households reported relying on subsis- tence agriculture as their main source of challenges GUINEA employment. More than two-thirds of households reported at least one episode The COVID-19 crisis has come on top of of food insecurity in the previous 30 days, PNG’s structural economic challenges, no- while nearly 40 percent of households re- Table 1 2021 tably the boom-and-bust cycles driven by ported insufficient access to water for Population, million 9.1 swings in natural resource sector exports. drinking and handwashing. GDP, current US$ billion 25.3 These cycles have been exacerbated by GDP per capita, current US$ 2773.8 sub-optimal fiscal and public expenditure a 39.9 management as expenditure goes up dur- National Poverty Rate Gini index a 41.9 ing booms, followed by spending cuts Recent developments b when the boom ends. Pandemic-related School enrollment, primary (% gross) 116.0 b global and domestic travel restrictions On the back of a strong global economic re- Life expectancy at birth, years 64.5 have weakened external and domestic de- covery, PNG reversed its downward eco- Total GHG Emissions (mtCO2e) 65.7 mand. In 2020, this has led to an economic nomic growth trajectory in 2021. The econ- Source: WDI, Macro Poverty Outlook, and official data. contraction, a sizable fiscal deficit, and omy contracted by 3.5 percent in 2020 be- a/ Most recent value (2009/10). National values b/ Most recent WDI value (2019). higher unemployment, and these out- fore returning to positive growth of 1 per- comes were only partially reversed in 2021. cent in 2021. The impact of COVID-19 on PNG has a highly dispersed and frag- economic output has been smaller than in mented population, low level of urban- many other EAP economies. The reasons The economy rebounded modestly in ization, significant gender disparities, for this include: low tourism exposure, 2021, supported by agriculture in the high exposure to natural disasters, high good performance of the agriculture sec- context of limited COVID-19 mobility degree of resource dependence, and in- tor, a time lag in the spread of COVID-19 restrictions. Rising fiscal deficit and ter-communal violence in some regions. within the country, fiscal stimulus, and the Weak governance severely constrains the recovery of commodity prices. However, the economic contraction placed the ability to effectively manage this chal- growth has lagged global and regional av- country at high risk of debt distress, lenging context. Fragility-related risks are erages. Economic performance in 2021 was requiring a fiscal consolidation. After exacerbated by the socio-economic im- constrained by falling gold and liquefied two years of contraction, the extractive pact of exogenous shocks, such as earth- natural gas (LNG) production that result- sector is projected to be the main dri- quakes and COVID-19. ed in a decline in extractive sector output Socio-economic development is lagging for for a second consecutive year. ver of GDP growth in 2022. With low large sections of the population in PNG. The Despite reversing the trajectory of the vaccination rates, limited fiscal space, last available nationally representative widening fiscal deficit, it remained large at and general elections in mid-2022, un- household survey, from 2010, suggested over 7 percent GDP in 2021. Public debt ex- certainty remains high. that about 38 percent of the population was ceeded 50 percent of GDP, and the coun- living below the US$1.90 per day (2011 PPP try is now classified at high risk of debt terms) poverty line. According to phone distress, according to the World Bank–IMF FIGURE 1 Papua New Guinea / Real GDP growth and FIGURE 2 Papua New Guinea / Key fiscal and debt contributions to real GDP growth indicators Percent, percentage points Percent of GDP 6 60 4 50 40 2 30 0 20 -2 10 -4 0 -6 -10 2018 2019 2020e 2021e 2022f 2023f 2024f 2017 2018 2019 2020e 2021e 2022f 2023f 2024f Extractive sector Non-extractive economy Revenue Expenditure Real GDP growth Overall balance Public debt, net Source: World Bank staff estimates and forecast. Source: World Bank staff estimates and forecast. MPO 1 Apr 22 Debt Sustainability Analysis. Contingent 2020. Employment and income levels in Meanwhile, uncertainty remains high. on prudent fiscal policies to be implement- mid-2021 were largely unchanged com- The Omicron variant of COVID-19 has ed, debt remain sustainable. The Bank of pared to December 2020. Preliminary been spreading fast in PNG, the least vac- PNG maintained the Kina Facility Rate at 3 analysis from the December 2021 survey cinated country in the EAP region. Less percent. Despite an accommodative mon- shows that most households continued us- than 6 percent of the adult population etary policy, private sector lending re- ing detrimental coping strategies such as received at least one vaccine dose, with mained flat due to subdued economic con- selling assets or drawing down on savings. 4 percent fully vaccinated. There is lit- ditions. Parliament passed amendments to Overall, the survey results are consistent tle prospect of a rapid increase in vacci- the Central Bank Act in December 2021 with a stall in economic recovery. nation rates, given high rates of vaccine that expanded its mandate beyond main- hesitancy. Combined with the low capac- taining price stability to also promoting ity of the public health system, this pos- employment and economic growth. The es a risk of higher casualties and a nega- current account surplus remained substan- Outlook tive impact on domestic economic activi- tial owing to depressed imports and high ty. Meanwhile, after the recent widening commodity prices. However, due to the In 2022, PNG is navigating a fragile re- of fiscal deficits, the government is ex- large debt repayments of the extractive covery. On the positive side, the extractive pected to implement a gradual fiscal con- sector, shortages of foreign currency re- sector is projected to rebound, driven by solidation. The fiscal space for a signif- main a key challenge. the planned reopening of the Porgera gold icant policy response in case of an eco- The impact of COVID-19 on livelihoods mine. Extractive sector growth is projected nomic shock is limited. The repercussions of the poor and vulnerable households to be the main driver of overall GDP of the Russia–Ukraine war might imply was severe, according to four rounds of growth in 2022 at 4.0 percent. High com- short-term gains from higher commod- a World Bank mobile phone survey con- modity prices will amplify this effect, sup- ity prices. However, the medium-term ducted between June 2020 and December porting the external accounts and provid- growth impact is likely to be negative due 2021. More than one-quarter of those ing (potentially) higher dividends to the to higher global uncertainty and lower working in January 2020 were estimated state-owned companies that hold shares in growth. Additionally, general elections in to have stopped working by December joint projects in the resource sector. mid-2022 heighten political uncertainties. TABLE 2 Papua New Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020e 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -3.5 1.0 4.0 2.7 2.5 a Extractive sector 11.3 -8.4 -6.2 6.8 2.9 2.4 Non-extractive economy 1.4 -1.1 4.2 2.9 2.6 2.6 Inflation (Consumer Price Index), period average 3.7 4.9 5.1 7.2 5.1 4.9 Current account balance (% GDP) 22.1 19.5 20.5 21.9 21.5 20.8 a Extractive sector 26.1 21.3 21.0 22.8 22.9 22.4 Non-extractive economy -4.0 -1.8 -0.5 -0.9 -1.4 -1.6 Overall fiscal balance (% of GDP) 5.0 -8.6 -7.6 -6.0 -4.9 -3.9 Non-resource primary balance (% of non-extractive GDP) -6.1 -10.4 -8.8 -6.9 -5.2 -3.6 Public debt, net (% of GDP) 40.2 48.9 52.3 52.4 53.7 53.6 Sources: World Bank staff estimates and forecast. e = estimate; f = forecast. (a) The extractive sector comprises mining, quarrying, petroleum and gas production. MPO 2 Apr 22